What is the Underwriting of Debentures Agreement ?
Underwriting is the process under which an independent underwriter or underwriting firm agrees to subscribe to the securities ( shares , debentures etc ) of the company in the event the securities are not subscribed by the public to the extent of minimum subscription requirement as prescribed by law. The underwriter in lieu of subscribing the securities is paid a percentage of commission on the issue price of securities.
Why is it important ?
1. Underwriting helps in achieving the minimum subscription requirement of securities .
2. The company can easily lure the investors to invest based on the reputation of the underwriters.
3. Since underwriters are highly qualified financial institutions with a wide customer base , therefore underwriting of issues helps the company in wide public distribution.
4. Underwriters are market experts which can help the company in strategising the issue.
5. Apart from underwriting commission, no additional cost is to be incurred by the company on advertisement and sale of the issue.
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